Broadcom's AI Hype Train: Or Just Another Chip in the Machine?
Alright, let's get one thing straight: I'm so goddamn tired of hearing about "AI." Every company, every stock, every talking head is suddenly an "AI play." Give me a break.
Broadcom's AVGO stock price is up 11%? Oh, it must be the AI pixie dust. Never mind the actual financials, the potential risks, or the fact that the entire market is being propped up by… well, hope, mostly. Gemini 3 Ignites the Market, Causing Broadcom’s Stock Price to Surge Over 11%.
The Hyperscaler Hype
So, CreditSights—whoever the hell they are—projects a 36% increase in CapEx from hyperscalers by 2026. And 75% of that is supposed to be AI-related. Okay, cool story, bro. But let's be real, these are just projections. Educated guesses, at best. They're saying Broadcom could benefit from a "significantly stronger growth rate." Could. Could. That's doing a lot of heavy lifting for something that might just be hot air.
And Hock Tan, the CEO, is playing coy about updating their AI SAM estimate. He'll get around to it "once the firm has better visibility," probably in 2026. Translation: "We'll tell you what you want to hear when we absolutely have to, and not a second sooner." I mean, the company did announce some deal with OpenAI, but who knows what that even means in terms of actual revenue.
But hey, at least AVGO is outperforming NVDA and the iShares Semiconductor ETF. Small victories, I guess, in the face of the coming AI winter.
Custom Chips and Legal Landmines
Broadcom makes "custom AI accelerators." Sounds fancy, right? Apparently, these chips are "precisely optimized" through "deep collaboration" with end-users. Okay, so they're not just selling off-the-shelf crap. Good for them. But that also means they're beholden to the whims of their hyperscaler overlords. What happens when Google decides to build its own chips in-house? Or when Amazon pivots to a completely different architecture?
Oh, and let's not forget the VMware acquisition. Supposedly, it's adding "recurring revenue" and "improving margin mix." But Fidelity is suing them, and European cloud providers are whining about "unfair licensing practices." So, it's not all sunshine and rainbows, is it?
It's like they're trying to build a house on a foundation of sand, hoping the AI tsunami doesn't wash it all away. Maybe I'm wrong. Maybe they’ll pull it off. But something about the whole thing feels… unsustainable.
The Numbers Game
Broadcom's Q3 FY2025 numbers look impressive: $15.95 billion in revenue, a 22% year-over-year increase. AI revenue is up 63% to $5.2 billion. Free cash flow is booming. They're even buying back shares. All the right boxes seem to be ticked off. But what happens when the music stops? What happens when the AI bubble bursts? I’m just asking questions here, people.
Analysts are throwing out price targets of $420-$480. TradingNews is projecting $30-$32 billion in fiscal 2026 AI revenues. It's all speculation. Hopeium. And the P/E multiple is sky-high.
The stock chart probably looks like a hockey stick, too. But technical analysis is basically astrology for dudes, so who cares?
Risks? Oh, there are plenty. Execution risk, legal risk, macro risk, semiconductor cyclicality risk, and, ofcourse, valuation risk. But hey, who's paying attention to those?
So, What's the Actual Upside?
Look, Broadcom might be a good long-term investment. They might sustain their leadership in the AI infrastructure build-out. But it all depends on execution, and that's a big "if." I ain't buying what they're selling… not yet, anyway.